Employment Insurance reform in the mid-Nineties encouraged young AtlanticCanadians to stay in school and choose professions with a stronger future,says AIMS study

HALIFAX — The repeal of the intensity and clawback provisions of the EI program may prevent young rural Canadians from choosing additional education and skilled jobs in favour of returning to the discredited EI/short-term work cycle of the past. This is the conclusion of a study by two University of New Brunswick professors of the impact of various changes to the Employment Insurance system over the last decade.

When the federal government embarked on deficit reduction in the late 1980s, it introduced a series of cuts to the UI program that lengthened the eligibility period and reduced benefits. The Liberal cabinet ministers who championed the reforms argued that they would encourage seasonal workers to work longer and draw unemployment benefits for shorter periods of time. This paper, by economists David Murrell (Department of Economics) and Rick Audas (Faculty of Administration) at UNB, argues that those reforms have had some success — especially among the young — and that repeal of some of the reforms would be a regressive move.

Using Statistics Canada data and HRDC’s own annual reports, the study argues that the reforms to the EI program over the 1990s has led to a substantial change in the economic behaviour of young Atlantic Canadians between the age of 18 and 29.

Unemployment rate changes suggest that much, though not all, of Atlantic Canada has witnessed labour market adjustments in line with or slightly better than that for Canada as a whole. Unemployed women are adjusting better than unemployed men. In Atlantic Canada the jobless young are adjusting better than that at the national level, whereas those over 55 years of age are not. The Employment Insurance revisions appear to have had some success in lowering unemployment, but they have largely failed to improve labour force adjustment among older, predominately male, blue-collar workers.

While the reforms have not been completely successful, they do represent an improvement from previous configurations of the EI/UI system. But the liberalisation of the clawback provision and the intensity rule is a backwards step, giving a much greater share of EI benefits to high-income workers, who can supplement their (often already significant) incomes with EI.

It will also make seasonal, blue-collar occupations more attractive to young people entering the labour market. This could contribute to a new generation of young people being caught in a trap of working just enough weeks to qualify for their EI benefits, rather than encouraging them to add to their human capital and move into good jobs that offer year-round employment. The change to fishermen’s EI has already encouraged more young Atlantic Canadians to enter an already overcrowded fishery.

The 1994-1996 reforms, along with the other reforms of the 1990s, encouraged positive adjustments in the Atlantic Canadian labour market. It appears to have done so with minimal hardship for those truly needing benefits. Based on the analysis of Professors Murrell and Audas, there are few, if any, compelling arguments to justify the re-liberalisation of EI. Instead their paper points up the need to push further the process of reform undertaken in the middle of the last decade.

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For further information contact:

Peter Fenwick at 902-429-1143, Brian Lee Crowley at 902-499-1998

David Murrell at 506-447-3207, or Rick Audas at 506-453-4869

“Beyond a hard place: The effects of Employment Insurance reform on Atlantic Canada’s economic dependency” is now available in pdf format.